Determinants of Repayment of Loan Beneficiaries of Micro Finance Institutions in Southeast States of Nigeria

Abstract

The study investigated the loan repayment, its determinants and socio-economic characteristics of microfinance loan beneficiaries in the Southeast states of Nigeria. It was carried out in three states of the five southeast states. Using a multistage sampling technique, a total of 144 loan beneficiaries in the three segments of MFIs, namely; formal (commercial and development banks); semi-formal (NGOs-MFIs) and informal (ROSCAS, “Isusu" and co-operative societies) were randomly selected and interviewed in the three states. An ordinary least square (OLS) multiple regression analysis was carried out to isolate and examine the determinants of loan repayment from the respondents' perspective. Results showed that beneficiaries had low level of education, operated enterprises at a relatively small scale, had large family size and were of middle age. Further, it was found out that the majority of the respondents were involved in farming enterprise (crop and poultry) even though trading was the most prominent single non-farming enterprise (trading, processing and artisanship). The result affirmed that the informal sector respondents recorded the best repayment rate, followed by the respondents of semi-formal and the banks brought the rear. Outstanding among the determinants of loan repayments from the respondents' perspective were; loan size, level of education, experience, profitability and portfolio diversity. These, therefore deserve special attention in loan administration of MFIs.